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Should-Read: Economist: Who will be the next chair of the Federal Reserve?

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Should-Read: Economist: Who will be the next chair of the Federal Reserve?: “The interest-rate opinions of the favourite to succeed her are less clear. Mr Cohn… https://www.economist.com/news/finance-and-economics/21726081-gary-cohn-leading-candidate-replace-janet-yellen-who-will-be-next …thinks that monetary policy is a global endeavour, and that central banks may have been playing beggar-thy-neighbour. In March 2016 he told a conference that if every central bank suddenly raised interest rates by three percentage points, “the world would be a better place”. Yet he also said he was not sure Ms Yellen had been right to raise rates three months earlier. And he criticised the Fed’s recent forward guidance as confusing for the markets. He said it should worry more about what it does

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Should-Read: Economist: Who will be the next chair of the Federal Reserve?: “The interest-rate opinions of the favourite to succeed her are less clear. Mr Cohn… https://www.economist.com/news/finance-and-economics/21726081-gary-cohn-leading-candidate-replace-janet-yellen-who-will-be-next

…thinks that monetary policy is a global endeavour, and that central banks may have been playing beggar-thy-neighbour. In March 2016 he told a conference that if every central bank suddenly raised interest rates by three percentage points, “the world would be a better place”. Yet he also said he was not sure Ms Yellen had been right to raise rates three months earlier. And he criticised the Fed’s recent forward guidance as confusing for the markets. He said it should worry more about what it does than what it says.

The Fed is not only responsible for monetary policy. It is also the biggest regulator of banks. Here Mr Cohn is more in sync with Mr Trump’s deregulatory agenda. However, that may not matter much. The president recently nominated Randal Quarles, another critic of recent regulation, to be vice-chairman for supervision, a post left empty since it was created in 2010 (though in practice the job was done by Daniel Tarullo, who left the Fed in April). Whoever heads the Fed, Mr Quarles will probably take the lead on regulation.

Other candidates are in the frame. Kevin Warsh (pictured on the right), a former banker who was a Fed policymaker from 2006 to 2011, appears to be manoeuvring for the job. Republicans in Congress may favour John Taylor (in glasses), a Stanford academic who devised a mathematical rule that describes central banks’ actions and, like many Republicans, wants the Fed to follow such an algorithm.

The two outsiders have contrasting skills. Mr Warsh is a smooth-talking politician who may lack the intellectual firepower of past Fed chairs. Nobody can doubt Mr Taylor’s braininess. But he did not leave much of a mark on Washington during previous stints there, most recently at the Treasury during George W. Bush’s first presidential term. So he may lack the political nous the job demands. In any case, Mr Warsh and Mr Taylor may well both be too hawkish for Mr Trump. After the financial crisis, both opposed the Fed’s quantitative easing (QE)—ie, purchases of securities using newly created money—warning of a surge in inflation. In fact, inflation has mostly been too low since then.

No names spring to mind, but Mr Trump still has time to find a trained economist who is a Republican and yet tends towards Ms Yellen’s views on interest rates…

Bradford DeLong
J. Bradford DeLong is Professor of Economics at the University of California at Berkeley and a research associate at the National Bureau of Economic Research. He was Deputy Assistant US Treasury Secretary during the Clinton Administration, where he was heavily involved in budget and trade negotiations. His role in designing the bailout of Mexico during the 1994 peso crisis placed him at the forefront of Latin America’s transformation into a region of open economies, and cemented his stature as a leading voice in economic-policy debates.

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